It has been pointed out on these occasions that both the Government and myself are very fully aware of the difficulties being experienced by motorists at present and in particular the problems being faced by young drivers, and the Ministers concerned have been extremely active in seeking ways of improving matters. All parties are concerned at the high cost of motor insurance. I will repeat myself once again and say that an interministerial group, comprising the Ministers for Justice, the Environment, the Attorney General and myself are at present examining ways and means of improving the environment for motor insurance. This group are focusing on strict and sustained enforcement of existing road traffic legislation, on amendments to the Road Traffic Acts designed to reduce the motor accident rate, on suggestions to improve the cost and availability of motor insurance and improvements or alternatives to the courts system for the resolution of personal injury claims.
This group have available to it the full resources and experience of all the Departments of State concerned with this area. They have had close consultation with the Irish Insurance Federation and have considered every aspect of the matter in considerable detail. So intensive has been the examination of the problem which this group have carried out that I cannot see what possible benefit would derive from the setting up of a Commission of Inquiry as advocated by the amendment to this motion. Such investigations for example, the O'Connor report in 1972, the O'Donoghue report in 1976 and the Prices Advisory report in 1982, have not led to the discovery of anything startlingly fresh. Indeed, what is needed now is action not the creation of a situation that would require awaiting the outcome of some future further investigation. I believe, given the progress made in the deliberations of the interministerial group, that such action will be taken speedily and, consequently, I cannot commend the establishment of a commission of inquiry to the House.
The Ministers with responsibility for the areas concerned have already announced a number of measures being considered by this group. Recently published Fine Gael proposals appear to be nothing more than a regurgitation of some old ideas and the taking on board of what has already been announced by Ministers. There is little in their document which has not already been put forward and debated and any claim that all or any of these ideas are novel and theirs is spurious.
The Fine Gael policy document suggests that insurers should introduce a policy for starter drivers which would cap the premium at £750. Approximately three years ago one insurance company introduced such a special young driver's policy which capped their premium at £800 per annum. However, following a very bad claims experience which the company sustained the company had, I am advised, no option but to significantly increase premiums. I do not believe this House — or any Minister — should try to dictate the level of premium required to meet specific risks, this is a commercial judgment best left to practitioners. I would point out based on previous experience that, if this cover were made available at the rate suggested by Fine Gael, someone else would have to pay for it, the more mature motorists. The problem of high insurance costs is not just confined to young drivers. For example, there are many mature drivers on low incomes who are having difficulty in meeting their present premiums and it would be unfair to further penalise them.
The price of insurance, including motor insurance, here — as indeed in any other market — is directly and substantially dependent on the frequency of claims and the cost of settling those claims. In 1988 insurers sustained underwriting losses of £48 million on their motor portfolios; the corresponding figure for 1989 was £116 million and losses for 1990 are expected to be similar to the 1989 figure. Confronted with losses of this magnitude and in order to maintain their viability, insurers have considered it necessary to increase their premiums in line with their claims experience and-or to exercise more selectivity in the type of risk undertaken.
The fundamental cause of high insurance prices for consumers is the high claims rate allied to the high cost of individual claims. These factors bear on the level of insurance premia quoted to young drivers as well as those quoted to more mature motorists. Insurers may legitimately require certain categories of business which represent a higher than average level of risk to pay higher premiums, to adequately reflect the claims experience of such risks. The Government are aware that when an insurance company quotes in respect of motor risks for young people the premiums may be regarded — and frequently are — by those concerned as excessive. The cost of motor insurance for young drivers, however, tends to reflect the claims experience of motor insurers. While one sympathises with the situation in which young drivers find themselves, statistical evidence has shown that they are more likely to be involved in accidents and, therefore, to cause claims. The cost of these claims can only be met by insurers if a realistic premium is forthcoming to cover the risk involved.
I should like to draw some of the statistics to the attention of the House. While young policy holders account for only 15 per cent of the total number of policies issued by insurers, young drivers account for 36 per cent of all claims. The average cost of claims caused by young drivers is more than 40 per cent higher than the cost of claims arising from more mature drivers. In 1989, the latest year for which full figures are available, 3,732 car or motorcycle drivers were killed or injured in road traffic accidents, of which 1,061 or 28 per cent were aged 24 or under and 2,119 or 57 per cent were aged 34 or under. Similarly, of the 2,940 car drivers killed or injured in 1989 in road traffic accidents, 568 or 19 per cent were aged 24 or under and 1,437 or 49 per cent were aged 34 or under. These figures clearly demonstrate the disproportionately high level of accidents involving young drivers. Indeed, specific research carried out by the Motor Insurance Advisory Board in recent years suggests that the loadings applied in Ireland for age of driver are not out of line with the identified level of risk.
This House may be aware that a formal common position was adopted by the European Community Council of Ministers under the Irish Presidency on 20 June 1990 on the EC Directive on Freedom of Services for Motor Insurance, which is due to be implemented by all member states before 20 November 1992. Since this directive has not yet come in the suggestions made that the use of derogations in its implementation here was causing a lack of competition is untrue as the directive cannot come into force until November 1992. The underlying principle of that directive is the creation of greater competition in the areas of policy conditions and premium rates and that the general availability of insurance should improve overall. While it is hoped that the opening up of the Community market will intensify competition, it should be noted that there is already a massive foreign presence in the Irish motor insurance market. Over 80 per cent of non-life insurance undertakings operating in Ireland are foreign owned.
Increased competition will not automatically lead to a reduction in insurance costs in Ireland. Prudent insurers, indigenous, foreign established or foreign services must set their premium rates to match the compensation pay-out. The compensation levels existing in each member state should determine the premium rates charged by both established and services insurers. The implementation of the Motor Insurance Freedom of Services Directive should help to emphasise the role of the policy holder and the claims atmosphere of the country concerned in determining the premium paid and minimise any misconceptions about "foreign" and "home" motor insurers in this regard.
The suggestion of insurers implementing tighter controls on claims is not new. I focused attention on this matter a long time ago. Indeed, as far back as January 1990, at the annual dinner of the Insurance Institute of Cork, I spoke about claims control on the following lines:
An ominous development in the non-life insurance area generally is the suggestion that there is an escalating problem in this country in the number of spurious claims. The insurance industry for example in referring to the specific area of "whiplash" injuries has indicated that there is firm evidence that the incidence of claims for such injuries in Ireland is significantly in excess of UK levels. Claims of this nature must be eliminated and efforts are needed from all parties to highlight and end any ambivalence in respect of such practices which might be present in the public mind. I sometimes get the impression that some people adopt a "hear no evil, see no evil" approach and ignore the fact that such an approach may be one of the reasons their insurance premium is not lower. This myopic and insular view is damaging and stupid and at the end of the day results in a real cost to the average insurance consumer. From the insurer's viewpoint greater use of information technology has obvious advantages in tackling the problem of dubious and spurious claims.
I was glad to read in the newspapers recently in regard to spurious claims that a huge series — 15 I think — carried out by one individual over a period of eight years was at long last unearthed. The judge made appropriate comments in dismissing the case. I am glad that the case got a good deal of publicity because it might serve as a warning to many others engaged in equally fraudulent practices in relation to the consequences if they are caught.
I was also pleased to learn recently that a magnetic resonance imaging scanner, which can help to detect if accident insurance claims are bogus, is in operation at present in a Dublin hospital. This scanner acts as a sort of "lie detector" preventing spurious claims arising from accidents. This type of scanner is a further help in detecting such claims and I understand that other hospitals are seeking funding to enable them instal such equipment.
Following discussions between my officials and the insurance industry, motor insurers have established a collective and computerised data bank to assist in the detection and stamping out of fraudulent or dubious claims.
I will deal later with the specific proposals which are being considered by the group in an effort to improve the insurance environment. However, I must dwell for a short time on my role as Minister for Industry and Commerce in relation to insurance and on the problems facing the insurance market in the State. It must be emphasised that the basic role of the Minister laid down both by national and Community law is one of supervision of insurers in order to ensure that insurance companies meet their statutory solvency and reserve requirements. It is not my function to tell insurers how to run their business or to interfere with their rights to accept or reject risks, or dictate the terms applicable to any insurance policy, or to interfere in their rights to charge realistic premiums in the light of their underwriting experience.
However, insurers do have certain duties. These duties lie in co-operating in the measures taken by the State and the community without undue selectivity in the acceptance of risks. I am confident that as in the past they supported the road safety campaign, the support of the industry will be forthcoming. It is a further concern that insurance should be provided efficiently and at a reasonable cost.
The cost of insurance cover has been increasing steeply recently. Many of the influencing factors are undoubtedly outside the direct control of insurers. In 1989, motor insurance claims costs are estimated to have risen by £28 million over 1988 as a result of increased claims frequency alone and by a further £40 million over 1988 on foot of a rise in the average cost of individual claims alone. Thus, the conclusion has to be reached that recent increases in motor insurance premia are due to increases in the claims frequency and the average cost of individual claims, that is the quantum of compensation. However, I expect insurance companies to control those factors within their ambit so that inefficiencies in the insurance sector do not give rise to any unnecessary costs which have to be borne by the community as a whole.
Insurers are subject to very stringent supervision rules and are required to maintain various categories of reserves in respect of outstanding claims, that is those which have been received but not yet settled, and claims which have arisen but not yet notified. The insurer must use the premium income to cover administration overheads and to meet due payments on claims. The balance of the premium income received in any year represents the underwriting profit or loss. In addition to these requirements each company is also obliged to maintain solvency margins. Insurance companies are therefore, subject to much more stringent financial control and supervision than is the case with commercial enterprises in general.
Consumers, of course, are more interested not in the supervisory aspects of insurance, except when a crisis arises but the issues of cost and availability of insurance, particularly motor insurance. I recognise, as I have said previously, that there are serious concerns in this area. We should, however be aware that increasing claims consciousness and a more litigious environment have a direct adverse effect on insurance costs. The greater inclination of many citizens to claim their full rights and entitlements to compensation under the law has meant that many more claims are made nowadays in respect of events which ten to 20 years ago would not have attracted a request for compensation. Undoubtedly citizens value these rights and would resist efforts to curtail their exercise, but they have a cost.
The cost of compensation in Ireland is abnormally high and has been so for far too long. In 1989 motor insurers paid out £320 million approximately in compensation costs. This gives some indication as to why insurance premia are seen as a burden. In principle, Irish society as a whole has two options with regard to insurance. We can accept the high levels of risks that exist at present and which arise from lack of care for safety, and this can only result in high prices for insurance, or we can reduce the level of risk which in turn should see significant improvements with regard to the price and the availability of insurance cover, and this is the course of action I hope we will take. There are two other options in regard to insurance, first that we should continue to have the highest level of compensation in Europe and perhaps the highest premia in Europe or we should have a normal level of compensation and normal levels of premia. I hope that this society, on reflection, would choose the latter rather than the former. Up to now we seem, as a society, to have voted for the former.
I was glad to read recently in an editorial in Business and Finance of 27 June 1991 a balanced approach to the subject of insurance. I would commend that article to all Members of the House. It set out the reasons insurance costs are so high in Ireland rather than just complaining about the high cost and ignoring the causes, which is usually what we hear in debates on insurance. I quote from that magazine:
Claimants have not been the only beneficiaries. The compensation boom has also thrown a lifeline to the rapidly expanding legal profession. Over the last 15 years the number of solicitors practising in this country has more than doubled, from 1,500 to 3,500. What do all these do for a living? On the available evidence many of them are living on the "compo" culture.
I am aware that certain members of the legal profession are advertising their wares concerning the consumer's right to compensation. This is little more than an encouragement to people to submit claims in circumstances where they would not otherwise have done so. I would urge the Incorporated Law Society to look into this matter and to discourage the type of advertising which almost incites people to bring claims. I have no objection to normal advertising where a firm makes available its name and address and so on. I hope when considering that matter the Incorporated Law Society will also avail of the opportunity to consider the practice, which I am advised is now widespread, of charging a percentage of the damages to the client concerned. That cannot but have the effect of increasing compensation. If the client realises he will have to pay a percentage of his damages to his own solicitor he has no option but to look for more than he might otherwise have settled for.
The inter-ministerial group established late last year has met on five occasions. Its brief is to ensure that action is proposed and taken by the appropriate Departments of State, which would be designed to improve the overall environment for motor insurance. The group reports directly to Government. Among the measures being proposed are strict and sustained enforcement of road traffic laws. Ministerial responsibility for the enforcement of road traffic legislation, via the Garda, rests with the Minister for Justice. The Garda authorities have confirmed that traffic law enforcement is continuing to be a high priority for the force in 1991. In particular, the force will be targeting breaches of drink driving laws and continuing the momentum generated during the anti-drink driving campaign in December 1990 which was particularly successful and for which the Garda and the Minister for Justice are entitled to our thanks and our congratulations. Increased resources in terms of gardaí and equipment have been provided for the road traffic corps.
The results of this continued enforcement are beginning to show benefits in terms of saving lives. There was a significant reduction in road accidents in the first quarter of 1991. Fatalities declined by 25 per cent, 90 compared to 122 in the same period in 1990, and injuries declined by 13 per cent as against the same period in 1990. However, at this early stage it would be imprudent to draw any definite long term conclusions from this.
Ministerial responsibility for road traffic legislation rests with the Minister for the Environment. It is his intention to propose a road traffic and licensing Bill for early consideration by the House. This Bill will provide for an increase in the minimum disqualification period for those convicted of dangerous or drunk driving from one year to two years. In addition, those convicted will be required to repeat the driving test before they can go back on the road even after the two year period is up. The Bill may make provision for the impounding of uninsured vehicles as well as introduce a mandatory disqualification period for those convicted of uninsured driving.
The Department of the Environment estimate that the threat of impounding uninsured vehicles, together with increases in the conventional penalties imposed on uninsured drivers, should result in a reduction of up to 50 per cent in the rate of uninsured driving and should result in approximately 42,000 extra vehicles being brought into the insurance system and contributing towards meeting the cost of claims arising from accidents.
The Department of the Environment are proposing the setting up of a register of driving instructors. That Department are involving the driving schools and the Irish Insurance Federation in the formulation and adoption of satisfactory standards for driving schools, to which standards registered driving schools will be required to adhere. It is important that very strict criteria must be set for the scheme and that tuition standards be agreed for the programme between Government, insurers and driving instructors. If an acceptable scheme can be agreed, the insurance industry will consider offering a discount to young or inexperienced drivers who have taken a minimum number of driving lessons from approved instructors. In regard to the question of driver testers, which Deputy Durkan complained about, I might add that the number of such testers was increased earlier this year from 44 to 83. As a result, the backlog of tests is being reduced rapidly.
The National Safety Council launched a road safety awareness plan in March 1991 which included a publicity campaign, to the funding of which the Irish Insurance Federation have contributed £250,000 in addition to the considerable financing which the federation already provides annually to the National Safety Council.
In addition, the Environmental Research Unit of the Department of the Environment are carrying out a survey on attitudes to road safety issues, use of seat belts, scale of drink-driving problems and observance of speed limits.
An analysis of statistics received from both the Irish Insurance Federation and the Department of Justice on awards made in personal injury cases reinforces the conclusion that the most appropriate basis for proposing improvements to the operations of the courts and fundamental alterations to the courts as a mechanism for resolving personal injury cases lies elsewhere than within the framework of the Courts Act, 1988. It is not that the Courts Act, 1988, has failed in its objective but, rather, that if there are to be significant and immediate reductions in the level of personal injury compensation and a less expensive way of settling claims then initiatives which go beyond the objectives of the Courts Act, 1988, are required.
Ministerial responsibility for the courts rests with the Minister for Justice. It is his intention to propose a courts and court officers Bill for early consideration by the House. The Bill will contain a number of provisions which will be of importance to the objective of improving the environment for insurance. For example, it will propose the establishment of a court of civil appeal with a very limited right of further appeal to the High Court in personal injury actions. Secondly, it will propose an extension to the powers of the Taxing Master in an effort to reintroduce a degree of control on legal costs in personal injury actions, which have gone out of all proportion in recent years. Thirdly, it will propose the giving of power to the Master of the High Court for the introduction of pre-trial procedures.
At the request of the Interministerial steering group, the Bar Council, the Incorporated Law Society and the Irish Insurance Federation met as a joint working group to examine proposals for some form of arbitration which could be explored as an option for the purposes of reducing the costs of personal injury actions and also to consider any proposals which the members of the joint working group might have that could have the effect of generating a similar reduction and an overall increase in cost effectiveness.
The joint working party of those three organisations submitted an interim report which recommends certain specific changes to procedures in personal injury cases to be implemented by way of changes to the rules of court; identifies areas for further examination and envisages a further report from the joint working group, and concludes that it would be premature to introduce an arbitration arrangement pending the implementation of the recommendations on procedural changes and experience of the operation of these changes.
The interministerial steering group are awaiting a further report from the joint working party.
The Minister for Justice has agreed that his Department would carry out a review of the levels and nature of personal injury compensation in Ireland in the light of a recent survey by Davies Arnold Cooper which suggests that personal injury compensation levels in Ireland are substantially higher than in other EC member states and a report which the Irish Insurance Federation is commissioning from Coopers and Lybrand on personal injury compensation levels in ireland compared to the UK.
In order to provide data which would enable the monitoring of personal injury claims costs on an ongoing basis, a format for the supply of such data is being finalised by the IIF and my Department. Such data will be useful in monitoring the impact of the initiatives to improve the environment for insurance on insurers' claims costs.
Other measures also under consideration by the interministerial group include a reduction in the blood alcohol level, hospital sampling of blood or urine post accident and a remedial programme for accident blackspots on roads.
These are only some of the measures being considered, and I hope the group will be in a position to announce the full package of measures shortly as the report has now been completed and a draft submitted to members, and that these can be implemented in the very early future once they have been agreed by Government. I would add, however, that Government action of itself will not reduce or stabilise motor insurance costs. Consumers must play their part by increased awareness of the need for safety.
In conclusion, for all the reasons I have enumerated, I do not consider it would be appropriate or useful to institute a commission of inquiry into the motor insurance industry, and Members should reflect carefully on the disruption of business and the costs which arise in servicing such inquiries before lending their support to calls for the setting up of it.